Thursday, July 27, 2017

Summary

RBB Bancorp is set to IPO on Wednesday (7.26) and plans to raise $82.8 million through the offer of 3 million shares at an expected price range of $22-24 per share.

Assuming RBB Bancorp prices at the mid-point of its proposed range, it would command a fully diluted market cap value of $373 million.

We are hearing that there is solid demand for this deal.

We recommend investors buy this IPO.

Overview

LA-based commercial bank, Royal Business Bank (RBB) will make its market debut on Wednesday (7.26) and expects to raise 82.8 million pricing its shares between $22 and $24. The bank is offering 2.1 million shares with 892,000 shares being offered by selling shareholder. The company intends to contribute approximately $25 million of its net proceeds to Royal Business Bank, its wholly-owned banking subsidiary, and to use the rest for general corporate purposes such as growth initiatives like future acquisitions.

Assuming shares price at the mid-point range, RBB Bancorp will have a market cap value of $373 million.

Company Background

RBB Bancorp was founded in 2008 with the mission of providing commercial banking services to first generation immigrants, initially concentrating on Chinese immigrants, and now, marketing to other Asian ethnicities as well. The bank’s management team has utilized its strong local community ties as well as relationships and credibility with federal and California bank regulatory agencies to build up its client base and operations.

RBB Bancorp serves all ethnicities. However, its marketing focus was initially on first generation Chinese-Americans who favored working with banks which conducted business in their native languages.

Foreign
investors have historically been interested in one type of property: trophy
office assets in the central business districts of gateway cities. But as the
foreign investment climate diversifies and evolves, Texas has come to stand out
as one of the most attractive markets for global dollars.

Courtesy: KDC, Four CityLine in Richardson, Texas

Texas now
outpaces both California and the U.S. average for foreign investment as a
percentage of total sales volume, according to CoStar. Its increase in direct
foreign investment since the Great Recession is rivaled only by New
York. (CoStar tracks mainly direct and announced joint ventures and does
not typically include fund investments.)

“Foreign
investments in Texas have changed, and while I wouldn’t say it’s been a huge
paradigm shift, you should pay attention,” Cushman & Wakefield executive
managing director Beth Lambert said. “As [foreign investors] get more
sophisticated in our country, they tend to spread out from product type and
still need to chase yield. If you’re looking to gather incremental return,
gateway cities are tough to do that.”

Since 2011,
Texas has been behind only New York and California for total new foreign direct
investment projects. Last year, foreign buyer sales volume exceeded $5B in
the Lone Star State, or about 15% of all sales, according to CoStar. That is a
huge leap from 2008 and 2009, when foreign investment accounted for less than
2% of all sales volume in Texas. The tail end of 2016 and Q1 of 2017 saw a
modest decline in Texas, but that seems to represent a blip rather than a
strong negative trend.

More than 50%
of foreign direct investment projects into Texas originated from western
Europe, predominantly the United Kingdom, Germany and France, according to the
Texas Economic Development Corp.

Courtesy of CoStar Foreign Buyers in
Texas, California, New York and the U.S.

Different
asset classes, particularly industrial, have become more attractive in recent
years. Industrial’s low cost per SF allows investors to buy more property, CBRE
vice chairman Jack Fraker said. Metros with high concentrations of industrial
assets, including many Texas cities, naturally benefit from more foreign
interest in the asset class. And more recently, a trend of acquiring industrial
portfolios has arisen.

In 2015,
$3.1B of cross-border investment was pumped into the Texas industrial sector
compared to $4.6B of domestic investment, according to Real Capital Analytics.
That $3.1B far exceeds the $156M invested into industrial assets from
cross-border funds in 2016. So far in 2017, foreign investment has pumped $227M
into Texas industrial product.

“Ten or 15
years ago you started to see industrial portfolios spread across multiple
cities [trading],” Fraker said. As e-commerce and last-mile distribution become
more imperative, industrial portfolios offer opportunities of scale, Fraker
said.

Part of what
makes Texas ripe for global investment is its infrastructure, PPA
Group chief investment officer John Latham said. PPA's value-add
multifamily acquisitions throughout Texas are funded largely from Chinese and
other foreign investors. More direct flights and better highways allow
investors to tour properties before they invest, Latham said.
Plus, high-quality infrastructure makes the industrial markets in Texas
that much more attractive for transporting goods.

“Over the
last 20 years, it’s gotten easier to get to Texas from the coasts. But Texas is
the next logical place,” Latham said.

Kyle Hagerty, Bisnow, Downtown Houston
skyline

Push factors
can be just as important as pull factors, Latham said. Many countries with high
concentrations of wealth are facing currency valuation issues, overbuilding and
government instability.

“The demand
is driven by what’s going on in their home country besides what’s going on
here. We often look stable comparatively,” he said.

While those
factors do not make Texas more attractive than, say, New York or San Francisco,
the Lone Star State often serves as a next frontier for foreign money looking
to spread itself out into other markets or increase its amount in real
estate holdings.

“When looking
at risk profile, there’s a natural tendency to diversify, and Texas is a
diverse state in all aspects,” Lambert said. DFW's economy is supported by many
sectors, Houston has strong ports, Austin is blossoming into a major metro, and
San Antonio provides incremental and stable economic growth.

Margaret Hunt Hill Bridge in Dallas

Institutional
investors, both foreign and domestic, have also increased their percentage of
real estate holdings from about 5% of total equity 10 years ago to double that
today, Fraker said.

As real
estate becomes a larger percentage of total investments, Lambert has seen a lot
more direct investments from foreigners who have opted to drop their local partner.

The opportunity to
generate positive yields transcends foreign investors specifically. “The demand
for yield is common across most investor groups; that’s not a U.S. phenomenon,”
Transwestern Corporate Properties president Laurie Dotter said. Dotter and
her Transwestern Investment Group team bought State Farm’s campus in Richardson
in a sale-leaseback with Seoul-based Mirae Asset Global Investments last fall.
“We see foreign investors saying, ‘I can comfortably generate good yield here
in Texas,’” Dotter said.Source: Bunch, Julia. "More Over Gateway Cities: Why Texas Is Attractive To Foreign Investors". Bisnow Dallas/Fort Worth. 23 May 2017. Web. 27 July 2017.

Monday, July 24, 2017

A Chinese manufacturer of building materials, hardware and home goods is readying plans to make way for a massive retail hub along the U.S. 380 corridor in Frisco, sources say.

The real estate rumblings come after an affiliate of Lesso America Inc., a subsidiary of China Lesso Group Holdings Ltd., acquired two tracts of land totaling more than 76 acres in Frisco for a new mall development site in June 2016.

Lesso America President Victor Lin did not respond to interview requests. Real estate sources say Lesso America is working on plans to build a multi-story retail center that would be a hybrid between an Ikea and a Home Depot with a focus on serving the growing North Texas suburbs.

If developed, this could be one of the first Lesso Mall developments to appear in the United States. But other U.S. locations could be in the mix.

In April, China Lesso acquired an underperforming mall, called Mall at the Source, in Westbury, New York, for a reported $90 million. The company has kept quiet about plans for the East Coast retail property.

The new store, called Lesso Home, brings all the Lesso-manufactured products available in other shops throughout Australia under one roof, Lin told the reporter. He also said the company was diversifying its interests amid challenging conditions in China with plans to open more locations in North America, the Middle East and Asia.

Two years ago, China Lesso Group made its move in America, launching its U.S. pipe production in Corona, California.

DFW's rapidly growing population along the U.S. 380 corridor could make this an ideal launch site for this type of retail concept in Texas, said Ken Reimer, partner and co-founder of Dallas-based Venture Commercial.

"There's no doubt there's a growing population in this part of the region that could handle a store like this," said Reimer, who works with numerous retailers searching for land sites for storefronts along the corridor.

Reimer, who did not know about Lesso Group's plans, said with few retail competitors along the growing U.S. 380 corridor and a building boom, he could see why a retail company like Lesso would be attracted to the site.

Plus, Frisco has received international attention with its rapid population growth, which has attracted global companies and investors to the city, he added.

"Collin County and Frisco have done a good job of attracting companies from throughout the world," he added.

An affiliated entity of China Lesso Group, called Lesso Mall Development (Frisco) Ltd., acquired the land last summer. Officials with the Frisco Economic Development Corp. have declined to comment on the project.